Budget Resolutions and Economic Situation

Jacob Rees-Mogg Excerpts

Friday 22nd March 2013 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

In a previous era of austerity presided over by a Tory-dominated Government, the slogans on Conservative party posters in its failed 1929 general election campaign included “Safety First” and “Trust Baldwin he will steer you to safety”. Having presided over the worst recovery in over 140 years, with an economy that is increasingly plagued by low investment, falling real wages, low productivity, dismal demand, stalled deficit reduction and surging public debt, the one guarantee is that the Conservative party will not be using either of those slogans in the name of the current Chancellor or Prime Minister come 2015.

[Jacob Rees-Mogg (North East Somerset) (Con)]

Will the hon. Gentleman give way?

[Mr Bain]

I will give way in a moment.

With the OBR having confirmed on Wednesday that people will be worse off in 2015 than they were in 2010, the Conservative party will also be unable to revive the 1959 election slogan: “Life’s Better Under the Conservatives”.

I have spoken in pervious Budget debates about the absurd economic theories that have underpinned the Government’s fiscal policies since 2010. As Mark Blyth writes in his recently published work on austerity:

“Austerity is a zombie economic idea because it has been disproven time and again, but it just keeps on coming.”

The central idea behind the Government’s economic policy is that a short-term sacrifice by the British people would produce long-term benefits in growth and a massive reduction in national debt.

There have been plenty of sacrifices demanded by the Chancellor: the average £10.47 a week in reduced support for child care for ordinary families since 2011; the higher VAT, which is costing ordinary families four times more in this Parliament than they will get back through the rise in the personal allowance to £10,000 from next year; the 1% cap on most benefits and tax credits being introduced in weeks, hurting 5.l million working-age households by as much as £5 a week on average; and, most cruelly of all, the vicious bedroom tax. The cumulative loss to ordinary families’ living standards in Scotland resulting from the tax, benefits and wages policies pursued by the Government has been quantified by Landman Economics for the TUC as £28.63 a week, or £1,488 a year, by 2015. What has it all been for? Where is the growth? When will our debts begin to fall during this Parliament? When will living standards begin to rise again for ordinary people?

Since the spending review in 2010, we have seen the third lowest growth in the G20, the fifth worst industrial production in the European Union and the fourth biggest slump in real wages in the EU. The judgment of the Office for Budget Responsibility on the Budget has been brutal—growth downgraded this year and next, by 0.8% of GDP, even since last December’s autumn statement; this Budget adding nothing to growth all the way through to 2018; borrowing £245 billion more than promised in 2010; and the national debt doubled by 2018 if we continue with the Chancellor’s failing plan.

Four years into a recovery, unemployment is stuck at 2.5 million—and is predicted by the OBR to peak at 2.63 million next year—and there are 3.2 million people underemployed in this country, desperate for more hours at work to pay the bills but unable to get them under a flatlining economy.

The Budget should have attempted to secure two aims: first, to boost economic demand to stimulate higher growth in the short term; and, secondly, to begin the process of rebalancing the economy by ending the culture of short-termism and making the fundamental reforms we need in our banking system.

In Scotland, retail sales are falling in a sector that comprises more than three quarters of economic output. Real wages have slumped by 3.2% since autumn 2010. Median wages are more than £3,000 a year lower in real terms since 2009. This week’s OBR projections mean a further loss of £200 a year in wages—four times more than any benefit from the increase in the personal tax allowance next year. The Chancellor should have eased that burden by cutting VAT to 17.5% in the Budget and putting back some of the £480 a year on average that he removed from average families in the June 2010 Budget. He should have done far more on child care costs.

--- Later in debate ---

[Jacob Rees-Mogg (North East Somerset) (Con)]

The Budget shows that this Government’s policies are beginning to work in the context of what Governments can realistically do to help an economy. The right hon. Member for Birmingham, Hodge Hill (Mr Byrne) suggested a fantasy world in which Governments can send a Chancellor to the Chamber on a Wednesday morning to press a growth button and introduce a new policy that will suddenly do this, that and the next thing. That is what some rather poor economists thought in the 1960s, but they have been proved comprehensively wrong. What Governments can do is set the framework within which businesses and individuals can lead economic growth. Governments cannot of themselves—they even failed to do this in the Soviet Union—create real growth just by the fiat of the Government.

How can we see that the Government’s policy is beginning to work? Two crucial statistics are now available. The first is the reduction in Government spending—the cut from 47.4% of GDP to 43.6%. That is a substantial reduction in the Government’s share of the nation’s income. It has taken some years to achieve and it needs to be reduced further, because, on average, it is very hard for Governments to get more than 38% of GDP in taxation—if it remains at 43%, there will still be a big deficit—but it is a huge move in the right direction to create stability in the economy, which will then allow businesses and individuals to lead economic growth.

[Jane Ellison]

Does my hon. Friend therefore share my surprise that the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) said from the Opposition Front Bench earlier that the Government were making no progress in rebalancing the economy?

[Jacob Rees-Mogg]

Opposition Members are talking about their new path. There was a Shining Path in one country at one point, but that was not very successful, although the Opposition are probably looking for the Via Dolorosa. We are definitely making progress.

I want to pick the hon. Member for Glasgow North East (Mr Bain) up on his wonderful reference to the 1930s. I was pleased that he reminded us of our splendid slogans, which I will certainly use in my election campaign. I think that this was a “Safety First” Budget, and quite right too. What the country needs is genuine prudence, rather than the prudence of the late ’90s and early 2000s.

[Mr Bain]

I was referring to the 1920s rather than the 1930s, but I think the point applies. The hon. Gentleman refers to growth, but given that the private and public sectors are retrenching, where will demand in the economy come from for there to be growth?

[Jacob Rees-Mogg]

There is a union of people whose seats have “North East” in their names and who make helpful interventions. I am extremely grateful to the hon. Gentleman because he leads me right to my next point, which is about the absolute essence of where growth will come from. I refer right hon. and hon. Members to page 56 of the “Economic and fiscal outlook” produced by the Office for Budget Responsibility, which contains charts on household leverage indicators. That is crucial because about three-quarters of the economy is dependent on private consumption. What we needed, and what has taken time, is for household budgets and balance sheets to rebalance at the same point as the Government balance sheet and budget.

In these charts we see that income leverage—interest payments as a percentage of income—is now at an historic low. That is important because it means that households can now afford to spend. Even more important, asset leverage is back alongside historic averages, so households are no longer over-geared in the way they were in 2007 and 2008. I actually think that the figure on household leverage is overstated because there is still a lot of bad debt in the system that the banks have been reluctant to write off because of concerns over their balance sheets. That is what has happened over the past few years. By following stable and sensible policies, the Government have allowed households to shore up their balance sheets, which means that they will now be in a position to begin to spend again should they wish.

Having looked at the big macro picture of two crucial things—Government expenditure under control, and household balance sheets restored—it is worth considering some of the positive detail within the Budget. The £2,000 cut in national insurance for businesses is fantastic. We know that small businesses are the ones that create new jobs—a series of data from the United States show that, on average, large companies shed 1 million jobs a year, while small companies create just over 1 million jobs a year. The reason for that is straightforward: large companies are always looking to cut costs, but small companies are where new ideas are built up. Anything that helps small businesses is welcome and national insurance is a very bad tax on jobs. I hope that ultimately the Government will look at national insurance in the round, but that will need to be in a time of boom, rather than a time of austerity.

The other policy that is relevant to today’s debate, which was opened by my right hon. Friend the Secretary of State for Work and Pensions, is the £10,000 tax threshold. That is a joy to behold because it gets us away from the taxation and benefits merry-go-round where people on low incomes are taxed and then given back some of their own money, once the Government have taken a cut for administration. We want to get that threshold as high as possible so that we do not tax people and then give them benefits. We want to get people out of that altogether, and out of the dependency culture that exists when we tax people on low incomes.

This measure has a further benefit if it can be extended and if the national insurance threshold can be raised, because that will reduce the administration of employment. If the national insurance threshold can be raised towards the £10,000 tax threshold, employers will be able to pay their employees without having a big administrative burden on top. I hope the Government will look at that as it would be a fantastic boost to employment. I think it could possibly be paid for simply by shifting the band for employees national insurance into line with the increase that would be made from the current level to £10,000. I accept there would be a gap on employers, but that might be minimised by doing it in the way I suggest.

[Thomas Docherty]

The hon. Gentleman is making a far more eloquent case than the Chancellor managed for this set of policies. He seems to be saying, however, that we should not have a contributory system towards the welfare state. Is that where his argument is heading?

[Jacob Rees-Mogg]

No, that is not where I am heading. I am saying that the contributions of people at the lowest end of the pay scales should be minimised.

The hon. Member for Hyndburn (Graham Jones) spoke of the Government’s housing scheme. It is potentially a very exciting scheme, and the most important part of the Budget. There has been some talk of the risk, but I believe there is very little risk. I have had a look at the house prices figures produced by the Land Registry from 2008 to date, and at inflation over the same period. If we combine the two, we see that house prices on the Land Registry index have fallen in real terms by nearly 25% since 2008, which means that the scheme is being introduced at a point when house prices are sustainable, and when the risk to the Government’s balance sheet is limited. The scheme has the great potential not only to allow people to buy properties for the first time or to move into better properties, but all that goes with that, such as refurbishment, extra spending on DIY and so on. The measure could be a boost to consumer expenditure as well as free up the housing market.

I have one caveat to make before I conclude. I am concerned about the general anti-avoidance provision, which may threaten the rule of law. I will speak more about that later.